IDEAS home Printed from https://ideas.repec.org/a/bec/imsber/v9y2017i3p71-103.html
   My bibliography  Save this article

Firm Characteristics and Cash-Cash Flow Sensitivity of the Manufacturing Sector of Pakistan

Author

Listed:
  • Saddiqa

    (Pakistan Institute of Development Economics, Islamabad)

  • Ayaz ul Haq

    (IQRA University, Islamabad)

Abstract

This paper investigates the sensitivity of corporate cash holdings to cash inflows (CFSC). The study also aims to investigate the differential effects of CFSC across financially-constrained and unconstrained-firms and across firms having high and low- Tobin’s Q. The study uses GMM model on unbalanced firm-level data of all manufacturing firms listed at the Pakistan Stock Exchange over the period 2000-2014. The results show that financially-constrained firms are more likely to hold extra cash out of their cash inflows than their unconstrained counterparts. Further, the sensitivity of cash holdings to cash inflows is more in growing firms than other firms.

Suggested Citation

  • Saddiqa & Ayaz ul Haq, 2017. "Firm Characteristics and Cash-Cash Flow Sensitivity of the Manufacturing Sector of Pakistan," Business & Economic Review, Institute of Management Sciences, Peshawar, Pakistan, vol. 9(3), pages 71-103, September.
    • Handle: RePEc:bec:imsber:v:9:y:2017:i:3:p:71-103
    DOI: dx.doi.org/10.22547/BER/9.3.3
    as

    Download full text from publisher

    File URL: http://imsciences.edu.pk/files/journals/vol-3_sep2017/Paper%203.pdf
    Download Restriction: no
    File URL: https://libkey.io/dx.doi.org/10.22547/BER/9.3.3?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Myers, Stewart C. & Majluf, Nicholas S., 1984. "Corporate financing and investment decisions when firms have information that investors do not have," Journal of Financial Economics, Elsevier, vol. 13(2), pages 187-221, June.
    2. Stewart C. Myers & Nicholas S. Majluf, 1984. "Corporate Financing and Investment Decisions When Firms Have InformationThat Investors Do Not Have," NBER Working Papers 1396, National Bureau of Economic Research, Inc.
    3. Shleifer, Andrei & Vishny, Robert W, 1992. "Liquidation Values and Debt Capacity: A Market Equilibrium Approach," Journal of Finance, American Finance Association, vol. 47(4), pages 1343-1366, September.
    4. Arellano, Manuel & Bover, Olympia, 1995. "Another look at the instrumental variable estimation of error-components models," Journal of Econometrics, Elsevier, vol. 68(1), pages 29-51, July.
    5. Lee Pinkowitz & René Stulz & Rohan Williamson, 2006. "Does the Contribution of Corporate Cash Holdings and Dividends to Firm Value Depend on Governance? A Cross‐country Analysis," Journal of Finance, American Finance Association, vol. 61(6), pages 2725-2751, December.
    6. Filipe Silva & Carlos Carreira, 2010. "Measuring firms’ financial constraints: Evidence for Portugal through different approaches," GEMF Working Papers 2010-15, GEMF, Faculty of Economics, University of Coimbra.
    7. Rozalia Pal & Annalisa Ferrando, 2010. "Financing constraints and firms' cash policy in the euro area," The European Journal of Finance, Taylor & Francis Journals, vol. 16(2), pages 153-171.
    8. Leigh A. Riddick & Toni M. Whited, 2009. "The Corporate Propensity to Save," Journal of Finance, American Finance Association, vol. 64(4), pages 1729-1766, August.
    9. J. M. Keynes, 1937. "The General Theory of Employment," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 51(2), pages 209-223.
    10. Ozkan, Aydin & Ozkan, Neslihan, 2004. "Corporate cash holdings: An empirical investigation of UK companies," Journal of Banking & Finance, Elsevier, vol. 28(9), pages 2103-2134, September.
    11. Blundell, Richard & Bond, Stephen, 1998. "Initial conditions and moment restrictions in dynamic panel data models," Journal of Econometrics, Elsevier, vol. 87(1), pages 115-143, August.
    12. Opler, Tim & Pinkowitz, Lee & Stulz, Rene & Williamson, Rohan, 1999. "The determinants and implications of corporate cash holdings," Journal of Financial Economics, Elsevier, vol. 52(1), pages 3-46, April.
    13. Khurana, Inder K. & Martin, Xiumin & Pereira, Raynolde, 2006. "Financial Development and the Cash Flow Sensitivity of Cash," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 41(4), pages 787-808, December.
    14. Ali Uyar & Cemil Kuzey, 2014. "Determinants of corporate cash holdings: evidence from the emerging market of Turkey," Applied Economics, Taylor & Francis Journals, vol. 46(9), pages 1035-1048, March.
    15. Jos頌󰥺-Gracia & Francisco Sogorb-Mira, 2015. "Financial constraints and cash-cash flow sensitivity," Applied Economics, Taylor & Francis Journals, vol. 47(10), pages 1037-1049, February.
    16. Toni M. Whited & Guojun Wu, 2006. "Financial Constraints Risk," Review of Financial Studies, Society for Financial Studies, vol. 19(2), pages 531-559.
    17. Bert D'Espallier & Sigrid Vandemaele & Ludo Peeters, 2008. "Investment‐Cash Flow Sensitivities or Cash‐Cash Flow Sensitivities? An Evaluative Framework for Measures of Financial Constraints," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 35(7‐8), pages 943-968, September.
    18. Harris, Milton & Raviv, Artur, 1990. "Capital Structure and the Informational Role of Debt," Journal of Finance, American Finance Association, vol. 45(2), pages 321-349, June.
    19. Miguel A. Ferreira & Antonio S. Vilela, 2004. "Why Do Firms Hold Cash? Evidence from EMU Countries," European Financial Management, European Financial Management Association, vol. 10(2), pages 295-319, June.
    20. Kim, Chang-Soo & Mauer, David C. & Sherman, Ann E., 1998. "The Determinants of Corporate Liquidity: Theory and Evidence," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 33(3), pages 335-359, September.
    21. Dittmar, Amy & Mahrt-Smith, Jan, 2007. "Corporate governance and the value of cash holdings," Journal of Financial Economics, Elsevier, vol. 83(3), pages 599-634, March.
    22. Jarrad Harford & Kai Li & Xinlei Zhao, 2008. "Corporate boards and the leverage and debt maturity choices," International Journal of Corporate Governance, Inderscience Enterprises Ltd, vol. 1(1), pages 3-27.
    23. Bert D'Espallier & Sigrid Vandemaele & Ludo Peeters, 2008. "Investment-Cash Flow Sensitivities or Cash-Cash Flow Sensitivities? An Evaluative Framework for Measures of Financial Constraints," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 35(7-8), pages 943-968.
    24. Myers, Stewart C., 1977. "Determinants of corporate borrowing," Journal of Financial Economics, Elsevier, vol. 5(2), pages 147-175, November.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Abdul Rashid & Maryam Ashfaq, 2017. "Financial Constraints And Corporate Cash Holdings: An Empirical Analysis Using Firm Level Data," Annals of Financial Economics (AFE), World Scientific Publishing Co. Pte. Ltd., vol. 12(02), pages 1-26, June.
    2. Efstathios Magerakis & Konstantinos Gkillas & Athanasios Tsagkanos & Costas Siriopoulos, 2020. "Firm Size Does Matter: New Evidence on the Determinants of Cash Holdings," JRFM, MDPI, vol. 13(8), pages 1-35, July.
    3. Stavros E. Arvanitis & Theodoros V. Stamatopoulos & Dimitris Terzakis, 2018. "Is There a Non-linear Relationship of Market Value with Cash and Ownership?," SPOUDAI Journal of Economics and Business, SPOUDAI Journal of Economics and Business, University of Piraeus, vol. 68(1), pages 3-25, January-M.
    4. Amess, Kevin & Banerji, Sanjay & Lampousis, Athanasios, 2015. "Corporate cash holdings: Causes and consequences," International Review of Financial Analysis, Elsevier, vol. 42(C), pages 421-433.
    5. Bigelli, Marco & Sánchez-Vidal, Javier, 2012. "Cash holdings in private firms," Journal of Banking & Finance, Elsevier, vol. 36(1), pages 26-35.
    6. Gao, Ning & Mohamed, Abdulkadir, 2018. "Cash-rich acquirers do not always make bad acquisitions: New evidence," Journal of Corporate Finance, Elsevier, vol. 50(C), pages 243-264.
    7. Alves, Duarte & Alves, Paulo & Carvalho, Luis & Pais, Claudio, 2022. "Cash holdings: International evidence," The Journal of Economic Asymmetries, Elsevier, vol. 26(C).
    8. repec:dau:papers:123456789/2938 is not listed on IDEAS
    9. Quoc Trung Tran, 2020. "Corporate cash holdings and financial crisis: new evidence from an emerging market," Eurasian Business Review, Springer;Eurasia Business and Economics Society, vol. 10(2), pages 271-285, June.
    10. Iskandar-Datta, Mai E. & Jia, Yonghong, 2012. "Cross-country analysis of secular cash trends," Journal of Banking & Finance, Elsevier, vol. 36(3), pages 898-912.
    11. Pedro J. García‐Teruel & Pedro Martínez‐Solano, 2008. "On the Determinants of SME Cash Holdings: Evidence from Spain," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 35(1‐2), pages 127-149, January.
    12. Lalita Anand & M. Thenmozhi & Nikhil Varaiya & Saumitra Bhadhuri, 2018. "Impact of Macroeconomic Factors on Cash Holdings?: A Dynamic Panel Model," Journal of Emerging Market Finance, Institute for Financial Management and Research, vol. 17(1_suppl), pages 27-53, April.
    13. Maurizio Rocca & Raffaele Staglianò & Tiziana Rocca & Alfio Cariola & Ekaterina Skatova, 2019. "Cash holdings and SME performance in Europe: the role of firm-specific and macroeconomic moderators," Small Business Economics, Springer, vol. 53(4), pages 1051-1078, December.
    14. Gaio, Cristina & Gonçalves, Tiago & Venâncio, Ana, 2022. "Cash holdings in start-ups: The role of founder sociodemographic characteristics," Journal of Business Research, Elsevier, vol. 139(C), pages 520-528.
    15. Huang, Winifred & Mazouz, Khelifa, 2018. "Excess cash, trading continuity, and liquidity risk," Journal of Corporate Finance, Elsevier, vol. 48(C), pages 275-291.
    16. Davide Dottori & Giacinto Micucci, 2018. "Corporate liquidity in Italy and its increase in the long recession," Economia Politica: Journal of Analytical and Institutional Economics, Springer;Fondazione Edison, vol. 35(3), pages 981-1014, December.
    17. Christopher F. Baum & Mustafa Caglayan & Oleksandr Talavera, 2013. "The Effects of Future Capital Investment and R&D Expenditures on Firms' Liquidity," Review of International Economics, Wiley Blackwell, vol. 21(3), pages 459-474, August.
    18. Ravinder Kumar Arora, 2019. "Corporate Cash Holdings: An Empirical Investigation of Indian Companies," Global Business Review, International Management Institute, vol. 20(4), pages 1088-1106, August.
    19. Tran, Quoc Trung, 2020. "Financial crisis, shareholder protection and cash holdings," Research in International Business and Finance, Elsevier, vol. 52(C).
    20. Alves, Paulo, 2018. "Cash holdings around the world: Financial crisis, culture and shareholder rights," MPRA Paper 89861, University Library of Munich, Germany, revised 2018.
    21. Qazi Awais Amin & Tom Williamson, 2021. "Firms cash management, adjustment cost and its impact on firms’ speed of adjustment: a cross country analysis," Review of Quantitative Finance and Accounting, Springer, vol. 56(1), pages 53-89, January.

    More about this item

    Keywords

    Cash flow sensitivity; Cash; Tobin’s Q; Constrained firms; GMM;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bec:imsber:v:9:y:2017:i:3:p:71-103. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Dr. Attaullah Shah (email available below). General contact details of provider: https://edirc.repec.org/data/imspepk.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.